What is norcen expected inventory holding cost

Assignment Help Operation Management

Reference no: EM132282713

Norcen Industries, a job shop specializing in close-tolerance manufacturing, has just accepted a $100,000 contract to provide machined parts to the Department of Defense. Production cost (direct labor, materials and overhead) is estimated to be $60,000. The due date for the delivered parts is June 30th. Given the uncertainties of manufacturing this order (and the uncertainties of job shop management in general), Norcen is considering what the planned leadtime for this job should be; i.e., how many months in advance of June 30th the job should be released to the shop. Once the job is released to the shop, the following leadtimes (and associated probabilities) are possible:

Actual Leadtime Probability

4 Months 0.1

5 " 0.2

6 " 0.3

8 " 0.2

9 " 0.2

If the job is completed in advance of its due date, Norcen must hold it in inventory at an estimated cost of $2,000 per month. If, on the other hand, Norcen fails to meet the due date, Norcen must pay a “tardiness” penalty of $5,000 per month.

a. If 5 months is the chosen planned leadtime, what is Norcen’s expected inventory holding cost?

b. If 6 months is the chosen planned leadtime, what is Norcen’s expected penalty cost?

c. How many months in advance of June 30th should Norcen release the order to the shop? What is the Total Expected Profit associated with this optimal planned leadtime?

Reference no: EM132282713

Questions Cloud

Adam Saver Credit associated with his IRA contribution : What is the amount of Adam's Saver's Credit associated with his IRA contribution?

Utilize the power and privilege definitions : On the course website menu, utilize the "power and privilege definitions"

What is the most common mistake about diversity : What is the most common mistake about diversity in health care.

Leadership development : What are three things that we can do to continue learning to be better leaders? What are some applications of these to your own leadership development?

What is norcen expected inventory holding cost : If 5 months is the chosen planned leadtime, what is Norcen’s expected inventory holding cost?

Principal aim of business firms in market system : The principal aim of business firms in a market system is to maximize the_______. The simplest definition of efficiency is.

Different types of marketing communication tactics : In Integrated Marketing Communication detail many different types of marketing communication tactics.

What is the difference between idea and opportunity : What is the difference between an idea and an opportunity?

Chronological-cycle driven and scheduled aircraft : Discuss the difference between chronological, cycle-driven, and scheduled aircraft maintenance inspections.

User Account

All Pages